USPTO Patent Trial And Appeal Board Completes The First Patent Invalidity Trial Under The America Invents Act

In its first “final” decision under the America Invents Act (AIA), the United States Patent and Trademark Office (USPTO)’s Patent Trial and Appeal Board (PTAB) has invalidated and cancelled all five challenged claims of U.S. Patent No. 6,553,350, finding that the claims recited unpatentably abstract ideas and did not recite a “useful” invention as required by 35 U.S.C. § 101.  A jury in a Texas federal district court had previously found that the petitioner, SAP America, Inc., infringed three of the claims at issue in the petition, awarding patent owner Versata Software, Inc. $345 million in damages.  A Federal Circuit panel affirmed that award last month, although SAP has petitioned for rehearing (on grounds relating to infringement and damages rather than validity).  The PTAB's decision has important implications for using inter partes review (IPR), transitional covered business method (CBM) patent review, and post grant review (PGR) and gives the public a first look at how the USPTO is implementing the new post-grant trial procedures to comply with the one-year time limit mandated by the AIA.  Among other things, it illustrates how the PTAB will construe claims under the new regimes and how the PTAB will control discovery and expedite review in these proceedings.

U.S. Patent No. 6,553,350 describes and claims a method and apparatus for pricing products and services.  The patent states that its "invention operates under the paradigm of WHO (the purchasing organization) is buying WHAT (the product)."  '350 col. 3:24-25.  The patent also explains that  the WHO/WHAT paradigm was known in the prior art.  Id., Fig. 1, 4:16-18. Versata Software asserted that the '350 patent improved on the prior-art requirement for large tables of WHO/WHAT (customer/products) data by arranging customers into a hierarchy of customer groups and products into a hierarchy of product groups.

SAP filed a CBM petition against the ’350 patent on September 16, 2012—the very first day that the AIA post-grant CBM procedure took effect.   SAP challenge claims 17 and 26-29 of the '350 patent under 35 U.S.C. §§ 101, 102 and 112.  On January 9, 2013, the PTAB granted the petition and called for a trial on SAP's 35 U.S.C. §§ 101 and 102 challenges, but it denied SAP's challenges under 35 U.S.C. § 112.  SAP requested an expedited trial on the § 101 issues.  Versata opposed, claiming that bifurcation of the § 101 and § 102 issues could prolong the proceeding and increase costs, contrary to the intent of the AIA.  SAP, however, agreed to the PTAB's proposal to forgo its anticipation challenge under § 102 in exchange for an expedited schedule.  The PTAB granted SAP's request to expedite the trial schedule by advancing the initial trial schedule by more than three months.  In its response on the merits, Versata contended that the challenged claims were patentable under 35 U.S.C. § 101 and that the Board had employed an incorrect claim construction standard.  For its part, SAP maintained that the claims were unpatentable and that the Board had construed the claims properly.  Both parties requested an oral hearing, which was held on April 17, 2013.  The PTAB issued its final written decision less than two months later, on June 11, 2013.

The PTAB decision holds that the USPTO will, as usual, apply the "broadest reasonable interpretation" of a claim when reassessing patentability, even though courts may apply a different standard in prior or concurrent litigation.  In particular, the PTAB rejected Versata's argument that the Board should have applied the claim construction adopted by the Texas district court rather than the broadest reasonable interpretation of the claims.  In so ruling, the PTAB held that the broadest reasonable interpretation standard continues to apply to reviews under the AIA because (1) use of the broadest reasonable interpretation standard for both pre- and post-issuance proceedings before the USPTO is consistent with the public goal of encouraging clear and unambiguous claim drafting; and (2) the AIA granted the USPTO rulemaking authority allowing it to adopt the broadest reasonable interpretation standard for AIA reviews.  The decision reviewed the legislative history leading to the USPTO's new authority for post-grant reviews and concluded that the PTAB may apply a different, broader claim construction than a district court has previously adopted.

On the merits of the § 101 issue, the PTAB first determined that the reviewed claims were abstract because they merely described computation of pricing using organizational theory.  The PTAB then held that the recited steps could be performed by a human mind and did not necessarily need to be performed by a computing device even though the claims recite use of a computing device.  The PTAB also held that the steps are not tied to any particular computing device and that any computing device can perform the steps.  Finally, the PTAB held that the claims were invalid under § 101 and had to be cancelled because they did not add meaningful limitations beyond the recited abstract idea and, in practical effect, preempted the abstract idea.

The PTAB decision illustrates that IPR or CBM reviews are viable and perhaps even preferable alternatives to district court trials for invalidity.  The jury in the district court case was not asked to render a verdict on the invalidity of the claims of the '350 patent under 35 U.S.C. §§ 101, 102, or written description or enablement grounds of 35 U.S.C. § 112.  Nevertheless, the PTAB decision makes clear that there is no presumption of validity of a patent before the USPTO in post-grant procedures.  Before a district court, a patent is presumed valid and that presumption may be overcome only by clear and convincing evidence.  In contrast, a petitioner's burden before the USPTO is limited to proving unpatentability by a preponderance of the evidence.  This difference, combined with the broader claim constructions resulting from the broadest reasonable interpretation standard generally makes it easier for an accused infringer to invalidate claims before the USPTO instead of a jury.  Moreover, § 101 challenges were previously unavailable in ex parte or inter partes reexamination procedures, and the decision here illustrates that the post grant review and CBM review  proceedings provide for a broader scope of challenges.  In particular, the PTAB may review §§ 101 and 112  issues and other novel or unsettled legal questions relating to the patentability of challenged patents.

Notably accused infringers need not file a post grant review proceeding (e.g., CBM, IPR and PGR) at the beginning of a lawsuit.  They may wait up to a year (e.g., in an IPR) in order to gain more insight into the patent holder's litigation strategy.  In some cases, the accused infringer may be able to obtain a stay of the litigation, depending on factors such as whether discovery is complete, whether a trial date has been set, whether a stay will simplify the issues in question and trial of the case; and whether a stay would unduly prejudice or present a clear tactical disadvantage to the other party.

Even if the challenger chooses to delay filing a post grant review petition, the IPR or CBM proceeding may be completed before any district court ruling.  In the SAP-Versata CBM review, the PTAB issued its final decision just five months and two days from institution of the PGR trial, and just nine months and six days from filing of the petition.  The shortened time to reach a final result was partially attributable to strategic choices of the parties.  As noted above, the PTAB ordered an expedited trial schedule on the § 101 issues after SAP agreed to drop its §102 challenges.  This suggests that petitioners may obtain expedited review in exchange for dropping issues or by dividing them into different proceedings.  Second, Versata did not file a reply to SAP's opposition even though it was entitled to do so.  Instead, Versata requested an oral hearing.  This indicates that the patent owner may forgo optional filings in order to move forward an oral hearing date.

CBM reviews are available until Sep. 16, 2020, for patents such as the '350 patent that claim "data processing or other operations used in the practice, administration, or management of a financial product or service."  Only persons or entities sued or charged with infringement of a covered business method patent may petition for a covered business method review of the patent.

The number of filings for IPR and CBM patent reviews at the USPTO indicates that the new post-grant proceedings under AIA have been well received by the patent community.  Between September 16, 2012, and June 14, 2013, the PTAB has received 292 IPR petitions and 28 CBM petitions and reviewed 111 petitions for IPR and CBM reviews on their merits.  Among the reviewed petitions, PTAB agreed to hold trials in about 90% of the cases.  IPR filings are largely driven by concurrent patent litigation, and we estimate that about 85% of the filed IPR petitions are associated with patent litigation.  The PTAB's ruling in the CBM trial in this case is likely to further increase the interest in using these new AIA procedures to challenge the validity of patents asserted in litigation.

Topics:  America Invents Act, Inventions, Patent Reform, Patent Trial and Appeal Board, Patents, Statutory Interpretation, USPTO

Published In: Civil Procedure Updates, Intellectual Property Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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